Category Archives: Robert Gore

Robert Gore Said That? 10/10/18

On Septemeber 30, at Murphy, North Carolina, I addressed the Appalachian Network PATCON, a gathering of very bright people on the cutting edge of preparation for the coming catastrophe. The topic was: “How to Survive an Economic Collapse.”

And the Q & A:

Who’s Right? by Robert Gore

The sky might not be falling, but a lot of important markets are, sending a different message than the U.S. equity market, where some indexes attained new highs last month. Set aside the government’s statistic mills, which the more cynical among us suspect may be as much propaganda as objectively gathered facts. While the media, financial seers, and sentiment indicators are overwhelmingly bullish for 2015, the action in other markets and other countries should temper the euphoria. Those markets are driven by self-interest and real money, they are joined at the hip to real economies, and some of them are far larger than the U.S. stock market. Don’t tell the equity-bullish contingent, but although central banks have done their best to severe all links, there may still be a connection between the real economy and stocks.

The 50 percent drop in the price of oil was big news the second half of 2014. What hasn’t garnered the same headlines have been drops in other commodities, some of larger magnitude than oil’s. Iron ore’s price peaked at $150 per ton in early 2013 and was below $70 per ton at the end of 2014. Copper hit $4.5 per pound in 2011; it’s now trading around $2.85. Part of these drops were probably due to increased supplies, fueled by ultra low interest rates that have enabled all sorts of malinvestment. However, these prices are sensitive to overall economic conditions—price is the intersection of both supply and demand. Falling prices almost certainly indicate falling demand. These three markets are by no means anomalous. The S&P GSCI (formerly the Goldman Sachs Commodity Index), a broad-based commodity index, was down 31 percent in 2014. The CRB index of commodities reached a high of 370 in 2011 and is now just below 250, a drop of 32 percent.

Related to commodity pricing is the Baltic Dry Index, an index of various shipping rates for dry bulk commodities. It is not confined to Baltic routes, and is a rough proxy for global trade in the covered items.The index reached its all time high in 2008 at 11,793, its post financial-crisis high in 2009 at 4661, as recently as 2011 was above 4000, but since November of 2014 has been almost cut in half, from 1484 to 771. The index appears to be confirming the message from commodities: pricing and trade for basic commodities are deteriorating.

Credit market indicators are a different chapter of the same story. The inflation break-even rate is a measure of credit markets’ inflation expectations. It is the difference between the rate on a government note or bond and its maturity-corresponding Treasury Inflation Protected Security rate, whose price is adjusted for inflation. Declining spreads, or break-even rates, indicate falling inflation expectations. Those spreads have been declining since the fall of 2012, precipitously the last half of 2014. While history doesn’t always repeat itself, they took a similar tumble during the last financial crises. The yield curve is a graph of yields across maturities for a given class of interest-rate securities. In the U.S. Treasury market, it usually has a positive slope, since investors generally want more interest-rate compensation for tying up their money longer. However, the degree of slope is a time-tested economic indicator (it is in the government’s index of leading economic indicators). A steeper slope generally indicates that investors are expecting stronger economic growth and higher inflation and interest rates, a flatter slope the opposite. The yield curve has been flattening since the end of 2013, and that flattening was especially pronounced in December (see “Starting The Year In Deeper Uncertainty,” Jeffrey P. Snider, Alhambra Investment Partners).

The flatter curve is consistent with falling break-even spreads. What is telling about these indicators is that the global economy is long past the point where the balance sheet expansion and ultra-low interest rates initiated by the world’s central banks in response to the financial crisis were supposed to have raised inflation expectations and interest rates, and promoted economic growth. In fact, the former have declined (some countries now have negative interest rates on shorter maturity debt) to multi-generational lows, and the latter has been uncharacteristically weak for a supposedly “recovering” global economy.

One other credit market indicator bears watching. The spread between indexes of non-investment grade (high yield) debt and government debt benchmarks measures investor optimism about lower quality borrowers’ ability to repay debt (in today’s low yield world, it also measures how desperate investors are to find any kind of return in the credit markets). Spreads in high-yield corporate debt reached their most recent lows last summer, and have moved steadily upwards since. Prices on high yield corporate debt, which move inversely to their yields, have declined 14 percent, and the decline has been particularly brutal for energy sector high yield debt, down 20 percent. Such price declines wipe out several years of coupon payments on the bonds, assuming the issuers stay in business and keep making those payments. High-yield bonds are sending a message consistent with that of other credit market indicators and commodities.

The rising foreign exchange value of the U.S. dollar further tightens the screws. By driving short-term rates close to zero, the Fed made the dollar a global “funding” currency. In other words, trillions of dollars worth of speculation around the world has been funded with dollars borrowed at ultra low rates. Anyone who borrows dollars in international currency and credit markets is short the dollar. They want its value to decline so they can repay their debt in cheaper dollars. Instead, the dollar has allied against most currencies through 2014, and that acts as a margin call, requiring speculators to increase their collateral or sell their positions. On a short-term basis the dollar is probably overbought. (The Wall Street Journal had a front page headline this weekend: “Dollar Hits an 11-Year High.” When a financial trend makes the front page of a major press organ, it usually signals the trend is just about over.) However, if the long-term trend is up, this will put more downward pressure on commodity and high-yield bond prices.

In Europe, Greece has been a source of drama since 2010. Tension now focuses on the Greek election January 25. The Syriza party, led by Alexis Tsipras, is leading in the polls. He wants to restructure Greece’s debt and roll back many of the austerity measures that have been imposed on Greece by the IMF, EC, and ECB in exchange for past aid and debt relief. At the very least, a Syriza victory would call into question the value of Greek debt, which is carried at full value on European banks’ books. It would probably prompt a reassessment of other peripheral European debt, which has rallied strongly on the prospect of ECB purchases as part of the European version of quantitative easing. Any unilateral Greek moves to reduce interest payments or restructure its debt would stop the envisioned ECB purchases. Even EU government statistics (SLL is skeptical of all governments’ statistics, not just the U.S.’s) indicate their economies are skating on thin ice. Some are already contracting, and a new Greek crisis would undoubtedly put the rest of the continent into recession.

A big part of the declining demand driving down commodity prices is coming from China. Chinese economic statistics are unusually suspect. As Anne-Stevenson-Yang, an expert on China for J Capital, put it in a recent interview with Barron’s: “People are crazy if they believe any government [referring to the Chinese government] statistics, which, of course, are largely fabricated.” (“Why Beijing’s Troubles Could Get a Lot Worse,” Barron’s, 12/8/14) Even the “fabricated” official numbers indicate China’s economy is slowing.

Debt-fueled bubbles (since 2000, total debt in China has expanded from $1 trillion to $25 trillion) in residential, industrial and infrastructure construction have left the country with millions of vacant houses and apartments, warehouses full of commodities for which there is little demand, and factories either idled or producing at reduced capacity. (For a chart-laden close-up, see “The Elephant Dragon In The Room: China’s Hard Landing, in 21 Charts,” Zero Hedge, 1/2/15.) Two of the other BRICs, Russia and Brazil, and well-known basket case Japan are not providing any oomph for the global economy, either. (For more on all three countries, see “Wall Street Heathens: How Their Greed And Gambling Became The Axe Of Statist Policy,” and “The Keynesian End Game Crystalizes In Japan’s Monetary Madness,”

So there is another side to the story that speculators and especially investors may want to consider before they plunk their money down. Sure, U.S. equity indexes went from record to record in 2014, the punditry is bullish for 2015, and the GDP grew at 5.0 percent in the third quarter (for a skeptical take on that statistic, see “Here Is The Reason For The ‘Surge’ In Q3 GDP,” Zero Hedge, 12/23/14). The Fed’s recent avowals to forego further monetary easing must be taken with the same shaker of salt one employs when an alcoholic in the throes of a nasty hangover swears off the poison. It still has the market’s back, and any significant equity “correction” will be met with more quantitative easing. However, commodities, credit, and economies in most of the developed world are sounding sour notes in the bullish chorus. After further investigation and analysis, those inclined to join the chorus may discount the discordant notes, but ignoring them entirely may prove most unwise.


TGP_photo 2 FB




The Economics of Debt, Deterioration, Deflation, Depression, and Disorder, by Robert Gore

Economies are analogous to ecosystems. Environmentalists’ base state is an ecosystem in a state of nature, unsullied by man. Economists’ base state is an economy in which, other than establishing and maintaining essential conditions—protection of property and contracts rights and physical security—the government is absent. Both systems rely on the autonomous actions of their constituent elements, organically adapting to the myriad stimuli and signals around them. Analyzing the changes and distortions caused by humans on ecosystems is a big part of environmental science. Similarly, much of economics analyzes the perturbations caused by governments in economies.

Money can be broadly defined as whatever enjoys widespread acceptance as a medium of exchange and store of value—a means of saving—within an economy. Demonstrably more efficient than barter, money plays a central role in any advanced economy. A distortion virtually every government has introduced into their economies has been the production of fiat money—money not backed by and therefore not exchangeable into a set weight of a metal or other good—whose acceptance is compelled by legal tender laws.

The ostensible reasons advanced for fiat money are mostly specious; governments do it because they benefit from doing so. Money buys things, and if government is the source of money, it also has an issuer’s advantage. While monetary depreciation eventually leads to price inflation, the government is ahead of the curve. It purchases goods and services with the money it is creating and debasing before the resultant inflation sets in (this issuer’s advantage is known as seignorage).

Fiat money has another benefit for governments, dwarfing seignorage: it supports deficit financing. A government that cannot borrow must extract taxes or fees from its populace, which is never popular and often resisted. Monetary depreciation allows the debtor to repay with money that is worth less than it was when the debt was incurred. If government is a debtor, it realizes that benefit, which is why inflation has been called a hidden tax.

More insidiously, a government can either issue its debt directly as money, or—the more modern approach—a central bank can “monetize” the government’s debt by buying that debt with money it creates. The central bank buys debt either with currency it produces or by increasing the selling counterparty’s account with the central bank (the latter practice is far more prevalent). With fiat money, a government’s debt represents a promise of repayment with either more debt or fiat money, and nothing more.

The central bank is a large, interest-rate insensitive buyer of its government’s debt. Its buying pushes the rate the government pays below what would prevail if there were only interest-rate sensitive private buyers in the market, and lowers most other rates, which are often benchmarked to the interest rates on government debt. A below-market interest rate increases borrowing and decreases saving below what would have prevailed at a higher rate. It is a misleading signal for investment; a lower cost of capital leads to more investment, and consequently more production, than if the economy had a true market cost of capital. Mis-priced money also encourages consumption and speculation in excess of what would have prevailed under higher rates.

Governments and central banks around the world have stretched ultra-low—or in some cases negative—interest rates, sovereign debt, debt monetization, and the promotion of consumption and speculative bubbles to historic extremes (see “A Skyscraper of Cards,” 10/19/14). Metaphysically, just stating the idea that value and real economic growth can be created by governments borrowing money, creating money, and using that created money to buy their own debt casts heavy suspicion on the whole enterprise. It sounds like magic, and it is. Reality confirms the skeptics. While these policies can produce short-term increases in growth and goose financial markets, in the long run those effects are reversed and the net effect is contractive rather than expansionary.



TGP_photo 2 FB





No nation has practiced this “magic” longer than Japan, whose economy has cycled from recession to anemic recovery to recession since the early 1990s (it just reentered recession). The Japanese once had one of the world’s highest savings rates, but the government has been drawing down its citizens’ savings on a two decade debt binge. Now it is the most indebted government, in terms of debt-to-GDP ratios (227.20 percent), in the developed world. Ultra-low interest rates (the Japanese 10 year interest rate is .47 percent) make saving an exercise in masochism. The central bank owns most of the government’s debt, and has expanded its purchase to private financial assets, including equities.

Japan offers ample proof that in the long term, debt and money magic retard production and growth. Despite a five-year rally, the Nikkei 225 stock index is not even half of what it was in 1989. As for a telling economic indicator, nothing captures people’s assessment of economic prospects and the future so well as the decision whether or not to have babies. Reflecting dwindling opportunities, Japan has one of the world’s lowest birthrates; its rapidly aging population now buys more adult than baby diapers. The elderly cohort will be yet another drain on Japanese savings as it pays for retirement. “Magic” economics requires running ever harder just to stay in place. The world’s financial markets got a Halloween treat when the Japanese central bank announced a 60 percent increase in asset purchases with funny money, but the prior, already massive, purchases have not stopped Japan from sliding back into recession.

Japan has been the pacesetter, but Europe and the United States are not far behind. Despite mammoth expansions of the European Central Bank’s and the Federal Reserve’s balance sheets in pursuit of unprecedented asset monetization, growth rates have been far below historical trend. European growth in 2013 was .1 percent, and the continent currently has either no growth or is in recession, depending on how many statistical angels are dancing on which pin heads and who is doing the counting. In the US, 3 percent plus growth used to be routine; 2 percent is the new normal. The last time the US saw 3 percent annual growth was 2005.

The labor market demonstrates the ongoing deterioration of the US economy. Taking the seasonally- and business-birth-and-death-adjusted, subject-to-future-revision employment statistics as offering a passable approximation of reality (perhaps a heroic assumption), there has been job growth, but the labor force is shrinking. However, it is the qualitative aspect of the labor market where the real story is told. David Stockman recently did a masterful analysis. Since the turn of the century, jobs in what Stockman terms the Breadwinner Economy: construction, manufacturing, white collar, finance, insurance, real estate, transport, information, and trade, have shrunk, replaced by much lower-paying jobs in hospitality, food service, and medical care. Readers are referred to Stockman’s article for a full analysis and explication ( ). During the greatest Federal Reserve balance sheet expansion in history, labor market fundamentals and the economy have deteriorated. It’s no mystery why a plurality of voters in the last election cited the economy as their chief concern, despite the much ballyhooed “recovery.”

Adding to labor’s pain: below market interest rates have promoted the substitution of capital for labor, and by promoting consumption, have fueled the US’s perpetual trade deficits, which create jobs in foreign countries. In a world where money is not the whimsical creation of central bankers, no country would be able to run trade deficits in perpetuity. Pressure on the currency and withdrawals of whatever stands as the government’s reserves backing it would force a deflationary price adjustment, including in wages, and an increase in interest rates to make the country’s economy more competitive in world markets.

No such adjustment is necessary when the world must accept an ever expanding supply of dollars, the so-called “reserve” currency, backed by no reserves but redeemable for more dollars or treasury debt. The usual do-gooders lament the state of the labor market, but champion a higher minimum wage. However, wages in this country must come down relative to wages in other countries—the flip side of years of living beyond our means—before the employment situation can meaningfully improve.

The liquidity that is not promoting economic growth is promoting bubbles in select financial markets, primarily sovereign debt and equities. Paraphrasing President Nixon, we are all speculators now. Central bankers have been candid about one of their motivations for microscopic interest rates: they want to push savers farther out on the risk spectrum, forcing them to buy either lower quality or longer-dated bonds, or equities. Everybody is speculating, from retirees switching money out of money market funds to stocks or bonds to earn a return, to corporations, who can find nothing better to do with their cash than buy their own stock. The expected rate of return on productive investment has equilibrated with the corporate cost of funds—close to zero—due to many years of overinvestment and overproduction. The theory has been that rising asset prices, particularly stock prices, produce a wealth effect, which prompts beneficiaries to go out and spend, in turn producing economic growth.

If, in light of dismal economic growth, that sounds like holding a lit match to a thermometer to heat up a room, it is—more magic. It reverses causality, trying to put the stock price cart before the economic growth horse. Thus, after a four-year rally, in 2013 the US stock market gained almost 30 percent (S&P index) while economic growth was 2.3 percent. Even if one buys the theory that stocks are a discounting mechanism, or predictor of future economic trends, last year’s strong rise has “discounted” growth so far this year of 2.2 percent, or slightly less than last year. Since the turn of the century, neither the wealth effect nor debt “magic” have produced the kind of trend growth during expansions that most of the developed world had taken for granted for at least four decades prior.

Central bankers have been less than candid about two other motivations for microscopic interest rates. Although some central banks are ostensibly independent, like the Federal Reserve, even the Fed can be considered an arm of the government when to comes to the government’s debt. Low rates ease the government’s debt service burden, and central bank monetization provides a ready buyer of debt.

However, the primary reason for easy money is to promote inflation, which devalues governments’ massive debts. If unfunded pension and medical liabilities are added to nominal debt, it is clear that the only way governments can hope to keep their many promises is by substantially devaluing them through monetary depreciation. The 2 percent inflation mantra that central banks around the world chant as a policy goal has nothing to do with the real economy, and everything to do with a hoped-for escalation of inflation governments so desperately need.

That central banks have been unable to achieve even 2 percent inflation is another indication of their policies’ ineffectiveness. The marginal return of an additional unit of debt-based liquidity is actually negative. It is not producing inflation or economic growth, and the debt carries an obligation to pay back an amount greater than the original loan. Underlying the oft-expressed fear of deflation is recognition that it would crucify governments. Just as inflation devalues debt, benefitting debtors, deflation makes debt more expensive to pay back. Deflation would make governments’ mounting debt loads that much more onerous, thus the almost hysterical fear of it.

Part and parcel of shrinking private-sector opportunity is expanding public-sector rapacity. Although taxes and fees keep rising, governments keep running deficits. The productive have been increasingly milked for the vote-buying benefit of the unproductive, with the state taking its cut. Its dead-hand grip on economic activity is tightening, not for the purported public-benefit justifications, but to increase economic rents to the government and its officials. Individuals and businesses lobby, curry favor, donate, and bribe to get subsidies, tax breaks, and regulatory dispensations. It speaks volumes that the Washington D.C. metropolitan area is now the nation’s wealthiest. Obamacare promises bounteous new opportunities for payola, taxes, and regulatory extortion, which was the real reason it was passed.

When “magic” economic nostrums can no longer keep an economy running in place, it falls backwards, painfully. In “non-magic” economics, debt growth well in excess of economic growth for an extended period, rising taxes, and increased regulatory sand in the gears and government rent-seeking eventually produces an economy that not only stops growing, but contracts. Almost immediately, debt in the most leveraged sectors of the economy starts unravelling, and in a debt-saturated economy that unravelling spreads quickly, because virtually every financial asset is someone else’s debt (or equity, which occupies an even lower rung on the priority-of-payback ladder). In 2008, it started with mortgages and mortgage-backed securities and engulfed the world’s financial system with frightening speed.

For years the world has looked one way down the railroad track, watching for the inflation locomotive, oblivious to the deflation locomotive coming from the other direction. There are always quibbles about the accuracy of price indexes, but the just-around-the-corner outbreak of skyrocketing inflation has remained just around the corner, despite years of massive central bank balance sheet expansion. Debt has become the medium of exchange (even the US currency, which is not usually thought of as debt, bears the title: Federal Reserve Note) and the global economy runs on debt. When debt plays such a central role and the gross amount starts to shrink, the result has to be economically contractive and deflationary. Debt shrinkage acts as a margin call: assets are sold, economic activity curtailed, and debts repudiated as debtors try to reduce their debt burdens. Their creditors must write off assets, sell other assets, curtail their economic activity, and repudiate their debts as the vicious cycle gathers steam.

The collapse of the world’s skyscraper of debt will take prices and economic activity with it. If the crash is proportional to the debt build up that preceded it (and it wouldn’t be wise to assume that it won’t be), it will take down governments as well. The Orwellian nightmare of totalitarian government, amplified by the Edward Snowden revelations, may be another case of the world fixating on the wrong fear. Come the crash, most governments will be flat broke, unable to borrow except at prohibitive rates. Command and control—monitoring, repressing, incarcerating, and torturing the populace—is expensive and stifles economic activity. Destitute governments will have their hands full maintaining the barest semblance of public order.

The smart money bet for what emerges from the rubble is chaos and anarchy, not government-maintained order. Which suggests that investments in self-sufficiency and self-protection, including firearms and training in their use, are prudent (There are a multitude of organizations and internet sites that provide guidance and sell provisions.) The people who have made those investments have been derided as the fringe, but events will probably give them the last laugh, if anyone is laughing in such a world.

Washington Gun Owners Plan Mass Defiance of New Background Check, by J.D. Tuccille

From J.D. Tuccille, at Reason‘s Hit and Run blog:

Tens of thousands of Connecticut gun owners chose to become overnight felons rather than comply with that state’s new gun registration law. The defiance spurred the Hartford Courant editorial board to impotently sputter about rounding up the scofflaws.

New York’s similar registration law suffers such low compliance that state officials won’t even reveal how many people have abide by the measure—a desperate secrecy ploy that the New York State Committee on Open Government says thumbs its nose at the law itself.

Now Washington state residents pissed of about i594, a ballot measure inflicting background check requirements on even private transactions, plan an exercise in mass disobedience next month.

The fellow getting much of the credit for organizing the rally is Gavin Seim, a former (unsuccessful) congressional candidate and passionate conservative. Seim got a lot of buzz last month when he pulled over an unmarked police car and demanded that the officer show identification. Perhaps surprisingly, Seim not only wasn’t ventilated, but the officer complied.

Seim and his allies (the Facebook event page lists Kit Lange Carroll, Sondra Seim, and Anthony P. Bosworth as co-hosts) plan a rally for the Washington State Capitol, in Olympia, on December 13 at 11am PST. That’s nine days after the law goes into effect. So far, almost 6,000 people have indicated their intention to attend and “exchange guns” without going through a background check, in defiance of the new requirements.

According to the state Attorney General’s analysis, there are exceptions to the background checks, but they’re pretty clearly delineated.

The measure would establish a number of exceptions to the background check requirement. A background check would not be required to transfer a firearm by gift between family members. The background check requirement also would not apply to the sale or transfer of antique firearms. It also would not apply to certain temporary transfers of a firearm when needed to prevent imminent death or great bodily harm. Background checks would not be required for certain public agencies or officers acting in their official capacity, including law enforcement or corrections agencies or officers, members of the military, and federal officials. Federally licensed gunsmiths who receive firearms solely to service or repair them would not be required to undergo background checks.

Certain other temporary transfers of a firearm would also not require a background check. These include temporary transfers between spouses, and temporary transfers for use at a shooting range, in a competition, or for performances. A temporary transfer to a person under age eighteen for hunting, sporting, or education would not require a background check. Other temporary transfers for lawful hunting also would not require a background check.

A person who inherited a firearm other than a pistol upon the death of its former owner would not be required to undergo a background check. A person who inherited a pistol would either have to lawfully transfer the pistol within 60 days or inform the department of licensing that he or she intended to keep the pistol.

Those are pretty broad exceptions (to unenforceable requirements), but they still don’t seem to accommodate exchanges at political rallies. What are the chances the authorities decide this is a “performance” and so they need take no action?

Even so, if the event comes off as planned and thousands of people show up to demonstrate an intent to publicly defy the law, that should be an indicator that Washington’s background checks are destined for the same fate as the registration laws in New York and Connecticut.

Below, Seim speaks about guns and i594 in the days leading up to the measure’s passage.

Battery Acid and Toilet Paper by Robert Gore

Conduct a global survey between capitalism and collectivism and the latter wins hands down, even backing out the votes of those suffering in collectivist regimes, who would fear stating their true preference. If capitalism were a brand, its owner would be consulting advertising and public relations mavens, deciding if it should be saved or retired. It has been losing shelf space for years to Ism X and Ism Y; perhaps it’s time to remove it entirely.

Of course, capitalism versus collectivism isn’t Coke versus Pepsi; it’s nectar versus battery acid. Perversely, battery acid is winning. One reason is deceptive labeling. Picture impoverished youth in an impoverished tenement in an impoverished country, desperate to change their situation. The causes of their poverty are standard: an overarching state, capricious laws and regulations, corruption, confiscatory taxation, and a crony-take-all economy. However, tenements are fertile grounds for purveyors of change, and no matter what the rabble-rousers are peddling, they blame capitalism for the intolerable situation, although it’s the departures from capitalism that have caused the misery.

Impressionable youth can be forgiven for believing nonsense, but despite their poverty many of them have cell phones and the internet. It is too much to hope that they will Google the historical record, which clinches the case for capitalism against collectivism, but if they want to know what life is like in a collectivist utopia, one search suggests itself: “surpluses and shortages in Venezuela.”

Befitting an egalitarian paradise, essentials—copies of President Nicolás Maduro’s latest speech—are plentiful, while luxury items like toilet paper are nowhere to be found. (Enemies of the state use the former as a rough substitute for the latter.) Other luxuries—milk, gasoline, electricity, water, diapers, soap, beans, tortillas, hard currencies—are also in short supply. In the US, where store shelves are packed with toilet paper in a variety of textures, plies, softnesses, sizes, and package quantities, any politician whose policies produced a shortage wouldn’t win 5 percent of the vote. Maduro won an election last year. In Venezuela, deprivation has been the winning platform, admiration of US plenitude a sure ticket to electoral oblivion, and good riddance to retrograde running dogs who emigrate to capitalist cesspools.

Would that we could swap such emigrants for our celebrities expressing admiration for Venezuela (Sean Penn), Cuba (Beyoncé, Danny Glover, Michael Moore), North Korea (Dennis Rodman) and China (too numerous to list); or trendy fashionistas jauntily displaying their Mao- and Che-wear and accessories; or the intellectuals without intellects raving about Thomas Piketty’s rewarmed Marxism. So what if collectivism has enslaved and murdered billions; it’s cool! If we can’t work that swap, can we get a show of hands from any proudly capitalistic billionaires volunteering to buy one-way airfare for those enamored of such “cool,” so they can enjoy permanent residency in their admirably progressive bastions?

Adam Smith observed that self-love, rather than benevolence, motivates the butcher, baker, and brewer. We give them money in exchange for steak, bread, and brew. They profit; we eat and drink. An admittedly incomplete survey of major religions and philosophies reveals few words of praise for either self-love or profit and numerous condemnations of both. We are extorted to live for a god or gods, families, tribes, villages, cities, provinces, nations, governments, races, the whole world (of which we are citizens, after all), common good, public interest, or environment, but never for ourselves (Ayn Rand is the outlier)

It can be argued that the weight of all this tradition, piety, and profundity crushes the case for capitalism, with its self-love and profit. However, today’s politicians, celebrities, fashionistas, and intellectuals are not traditional, pious, or profound, so their animus towards capitalism must spring from some other source. While one of the joys of psychology is ascribing mental and emotional pathologies to people you don’t like, the suggestion is now advanced—without malice—that the causes of their loathing are rooted in that branch of science.

As we wanna-be psychologists are wont to do, let’s journey back to childhood. The psycho-educational establishment has declared self-esteem an entitlement, but the fact remains that some kids are smarter, more popular, better looking, and more athletic than others. Capitalism rewards productivity and competitive ability in the marketplace. For those who come up short in those attributes, it’s the playground all over again. They might feel badly about themselves and resent, even envy, those who succeed. With their deficient self-esteems, rather than improving themselves, they might advocate a political philosophy that promises to chop down taller trees.

They might also compensate for their deficiencies by seeking the approval of others. The quickest way to make friends in a bar is to buy the drinks. Politically, one does the same thing by promising goodies. Unlike the bar, you don’t even have to spend your own money; your beneficiaries will applaud as you take it from the productive. Not only are you cool, you get to pose as a humanitarian. A few curmudgeons might be unhappy about funding your popularity, but who cares about them? They’re definitely uncool—selfish, stingy, and mean.

Uncool as capitalism may be, a thought experiment helps make the case that it is the only moral economic system. Imagine a world without violence. Humans have evolved and no longer use it; some sort of invention has stopped it; by whatever stroke of fortune, violence is absent, unimaginable even. If nothing can be taken by force, people have to produce or exchange for what they want, or rely on voluntary charity from others. There is only one system that could exist in such a world—capitalism—indeed it would thrive. The main ingredient of all those other brands is violence; the main ingredients of brand capitalism are freedom, production, and mutually beneficial exchange. Reason enough to leave it up on the shelf. After everything else comes up short, shoppers will one day make the switch.

TGP_photo 2 FB




The Only Issue That Matters by Robert Gore

The most radical idea in human history is that might does not make right. For centuries the contrary tenet has held brutal sway. History book are chronicles of rulers and ruled, conquests, empires, and inevitably, failure and collapse. If people’s histories had been written by the forerunners of Howard Zinn, they would have detailed lives of subjugation and misery. The common folks were fodder for their rulers, who exercised first claim on their lives and property. The only checks on power were the occasional insurrection or military defeat, but the new boss was usually the same as the old boss.

The printing press was probably the most significant invention in human history. At the time (1439), the concept of individual rights was heresy, treason, or both. Its fragile shoots first poked through during the Reformation and grew during the Renaissance and Enlightenment. Europe’s clergy and aristocracy, their entitlements supposedly granted by God, fought the idea ferociously. However, challenges to privilege, along with both intellectual and emotional arguments for individual rights, enjoyed widespread appeal among the subjugated, but increasingly literate (thanks to Gutenberg), masses.

The American Revolution was definitely the most significant revolution in human history. Any freshman political science major can point out where actual practice of the Founding Fathers diverged from the stated ideals and aims of the Declaration of Independence and the Constitution. The breathtaking historical departure was that those ideals and aims had been declared as a basis for the colonists’ rebellion and then incorporated into a charter of government. The design— separation of powers, checks and balances, explicit limitations on the government’s power, explicit protection of individual rights—was the product of elaborate compromises among strongly held passions, but no longer would might make right. Might was to be put in service of rights and subordinated to them.

By 1835, when Alexis de Tocqueville published the first volume of Democracy in America, it was clear to this astute foreign observer that something extraordinary was happening in America. Freedom was breeding a new kind of person—the autonomous and empowered individual, who wanted the government to maintain public order and not do much else. The flow of immigrants from Europe, which would later become a flood from all over the world, recognized an unprecedented opportunity to live their lives and improve their situations almost completely unhindered by the governing power. This was the bedrock of American exceptionalism: freedom and its consequent opportunities. Tocqueville argued that slaves would never be as productive as free workers and that the north’s industrializing economy had already eclipsed the agrarian south’s. Slavery, the most glaring contradiction to our founding ideals, was doomed, and that economic divergence would have ended it if the Civil War had not. As it was, northern industry and transportation systems proved decisive in the war.

Freedom and the economics of freedom—capitalism—produced the wonder of the Industrial Revolution. The forty-eight-year period after the Civil War was stunning testament to what a free people could do. It is no exaggeration to say that science, technology, industry, productive capacity, and the average standard of living advanced more in that period than they had during all the centuries prior. The period came to an abrupt end in 1913, when the ratification of the 16th Amendment gave the government the power to levy income taxes and the establishment of the Federal Reserve led to the gradual imposition of fiat money.

Over the next one hundred-and-one years the freedom that had worked spectacularly well was abandoned for a grab bag of doomed-to-fail political philosophies. The twentieth century was easily history’s bloodiest, with one particularly malignant doctrine—communism—responsible for an estimated 60 to 100 million deaths. The defining feature of the grab bag was reversion to historical type: might once again made right. Individuals are again subservient to the state, whatever its governing philosophy. They pay taxes; fund vote buying, forced redistribution, corruption, and cronyism; obey arbitrary laws and regulations; fight wars; cower in civil-liberties-stripping fear of whatever their leaders say they should be afraid of, and mouth stale pieties that provide those leaders with a veneer of legitimacy.

When your freedom is gone, it doesn’t matter who took it or what “ism” they spout. All you see is the gun. Freedom has one foot in the grave in the US and the eventual coup de grâce will amount to a trivial irrelevance. Perhaps it will be the masters of our police state apparatus going full rogue, some sort of outrage by a group the government labels as terrorist, the threat of an epidemic, or something else, but only the stubbornly myopic do not see the totalitarianism on the horizon. While “freedom” and “liberty” occasionally appear in campaign materials, in actual practice they are kept hidden away, treated as one treats embarrassing photographs from one’s younger days. In the younger days of what used to be our republic (mob rule is the best description of what we have now), an infringement of the people’s liberty could be invoked as an argument against the government’s expansion. Nowadays such invocations are treated as appeals to the lunatic fringe.

The 2014 election has shaped up as a content-free contest between the parties to prove which of them dislikes President Obama and his policies more. The Republicans have the natural advantage and the polls indicate they may pick up a Senate majority. This will leave Washington gridlocked, but nothing checks the government’s nonstop, liberty-destroying usurpation of power. Freedom versus coercion and its corollary—the individual versus the state—have been the leitmotifs of history. Whatever else the candidates blather about, restoring the Founders’ towering legacy—liberty, individual rights, subordinated and limited government—is the only issue that matters. By ignoring it, we ensure that our government will end up on the same scrap heap as all those other doomed-to-fail governments.

TGP_photo 2 FB

See Batting 1000 by Robert Gore




She Said That? 10/21/14

From Monica Lewinsky, delivering a speech to 1,000-plus young entrepreneurs and achievers at Forbes’ 30 under 30 Summit in Philadelphia:

Sixteen years ago, fresh out of college, a 22-year-old intern in the White House — and more than averagely romantic – I fell in love with my boss in a 22-year-old sort of a way. It happens. But my boss was the President of the United States.

Fair enough; who doesn’t make mistakes when they’re 22-years-old, especially romantic ones?

But back then, in 1995, we started an affair that lasted, on and off, for two years. And, at that time, it was my everything. That, I guess you could say, was the golden bubble part for me; the nice part. The nasty part was that it became public. Public with a vengeance.

Thanks to the internet and a website that at the time, was scarcely known outside of Washington DC but a website most of us know today called the Drudge report. Within 24 hours I became a public figure, not just in the United States but around the entire globe. As far as major news stories were concerned, this was the very first time that the traditional media was usurped by the Internet.

Not that the traditional media didn’t have a chance. Newsweek had the story and sat on it until after The Drudge Report broke it. This is the first of multiple Monica shots at the internet. Regrettably, from her perspective, we weren’t in Camelot anymore, when a few newspapers and magazines and the three television networks controlled news flow and never bothered telling us about JFK’s philandering, an open secret among the White House press corps.

Overnight, I went from being a completely private figure to a publicly humiliated one. I was Patient Zero.

The first person to have their reputation completely destroyed worldwide via the Internet. There was no Facebook, Twitter or Instagram back then. But there were gossip, news and entertainment websites replete with comment sections and emails could be forwarded.

The Patient Zero reference is clever; the connotation being that Ms. Lewinsky was the victim of a disease over which she had no control. Even at the tender age of 22, did she think that if her affair with the most powerful and publicized figure on the planet was made public people would just ignore and forget about it? She blames neither herself nor President Clinton for destroying her reputation. It’s all that nasty old internet’s fault. Let the pity party begin.

But these are all just words. What does it actually feel like? What does it really feel like to watch yourself – or your name and likeness—to be ripped apart online?

Some of you may know this yourself. It feels like a punch in the gut. As if a stranger walked up to you on the street and punched you hard and sharp in the gut.

For me, that was every day in 1998. There was a rotation of worsening name calling and descriptions of me. I would go online, read in a paper or see on TV people referring to me as: tramp, slut, whore, tart, bimbo, floozy, even spy.

And that was just Hillary Clinton. Her campaigns against not just Lewinsky but all of Bill’s Bimbos, as they were affectionately called by Clinton insiders, were legendary in their viciousness. Lewinsky conflates her long litany of scandal-inspired suffering with that of the cyber-bullied and other people who through no fault of their own are victimized on the internet.

We are all vulnerable to humiliation, private and public figures alike. (I’m sure Jennifer Lawrence would agree with that. Or any of the 90,000 people whose private Snapchat pictures were released last week during “the Snappening”).

The consequences can be devastating. And anyone can be next. One day in 2010, an 18-year-old Rutgers freshman called Tyler Clementi, was next. After his roommate secretly videotape streamed him via Webcam kissing another man, Tyler was derided and ridiculed online.

A few days later, submerged in the shame and public humiliation, he jumped from the George Washington Bridge to his death.

Ms. Lewinsky ruminates on reputation.

It’s been said: It takes a lifetime to build a good reputation but you can lose it in a minute. That’s never been more true than today.

You’re not here in this room by accident. You’re here, all of you, because of your reputations in your chosen fields, your reputations as talented, driven, serious people with something important to contribute to the world.

Reputation is important to everybody whether you’re exceptional people like yourselves or people who count themselves as ordinary.

A reputation isn’t like a fashion accessory or a status symbol: an Apple watch, a Tesla or even an engagement ring from Tiffany’s (though I wouldn’t mind one of those).

It’s part of who you are. It’s part of who you are, socially and professionally. It’s part of how you think about yourselves. It’s part of your personal and your public identity. Lose it, as you so easily can, and you lose an integral part of yourself.

That’s what happened to me in 1998 when public Monica – that Monica, that woman – was born. The creature from the media lagoon.

I lost my reputation. I was publicly identified as someone I didn’t recognize. And I lost my sense of self. Lost it, or had it stolen; because in a way, it was a form of identity theft.

There you have it: Monica the victim, of “a form of identity theft” no less! One searches for any acknowledgement that she might have caused some of the damage that her reputation so tragically suffered, other than one sentence in which she notes, “…her own personal shame…” along with that which befell her family, “…and shame that befell my country—our country.” In other words, her shame was really that she was shamed, as was her blameless family, and this shaming shamed the whole country. No shame is shared by the president who was twice her age, used her sexually, and of course committed adultery, at least by most people’s definition of the word “sex.” No shame is shared by the president’s wife, who pursued vendettas against her husband’s paramours, not for the affairs, but for having the temerity to tell the public. No shame is shared by those “liberated liberals” who scorned “traditional morality,” applauded Ms. Lewinsky and the president’s sexual “venturesomeness,” but would have nothing to do with her.

No, it’s all Matt Drudge’s fault; he published the truth.

Full transcript of Ms. Lewinsky’s speech

A Skyscraper of Cards by Robert Gore

Every now and then the world is visited by one of these delusive seasons, when “the credit system,” as it is called, expands to full luxuriance, everybody trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men are tempted to dash forward boldly, from the facility of borrowing….Every one now talks in thousands; nothing is heard but gigantic operations in trade; great purchases and sales of real property, and immense sums made at every transfer….Speculation is the romance of trade, and casts contempt upon all its sober realities….a panic succeeds, and the whole superstructure, built upon credit and reared by speculation, crumbles to the ground, leaving scarce a wreck behind: ‘It is such stuff as dreams are made of.’

Washington Irving, The Great Mississippi Bubble, 1820

Had the Nobel Prize for economics existed back in 1820, Mr. Irving would have been a worthy candidate. He certainly had a better grasp of the subject than many who have won it. As Deacon Bainbridge, a character in The Golden Pinnacle, noted: “Historically, you’ve been able to tell everything you need to know about a government by the quality of its money.” Money has become the “stuff as dreams are made of”: ephemeral, evanescent, lighter than air…vanishing when eyes are opened. As chaos engulfs the world, governments stand revealed; they’re of the same quality as their currencies.

Money reduces the transaction costs and inefficiencies associated with barter and is a store of value, the standard of accounting, and the medium of exchange. Debt allows those who produce more than they consume to lend and earn a return from those who use that surplus to consume or invest. A system whereby money and debt are created at the whim of either a government or its central bank will not work, in that long run Keynes infamously dismissed, because it cannot work. When money and credit are divorced from the underlying economy, they become agents of destruction rather than production and growth.

The mathematics of debt growth in excess of underlying economic growth are inescapable. Taken to its logical extreme, every asset would be collateralized and debt service would stifle economic activity. Before that point is reached, however, debt becomes an unbearable economic burden—its costs exceed its benefits—which throws debt formation into reverse. The reversal in a system whereby fiat money, governmental borrowing, and central banking have divorced debt growth from the real economy is swift, dramatic, and inevitably contractive and deflationary.

The global government- and central bank-promoted expansion of debt the last five years has been sold as a means of restoring aggregate demand, combatting perceived threats of deflation, raising the prices of financial assets and real estate, and creating economically beneficial wealth effects. It actually marks the end game of many decades in which debt and the price of debt have been completely untethered from the real economy.

A skyscraper of cards has been built on a superabundance of debt priced at interest rates that offer creditors no compensation for credit or market risk, much less a real return on their capital. The purported justifications for the debt explosion are specious. It is actually a last-gasp attempt by governments to reduce their debt service costs and devalue their staggering levels of debt through currency devaluation and inflation. Central banks have been willing accomplices; buyers of government debt whose interest-rate-insensitive demand has driven rates far lower than what would have prevailed if the market were not subject to their manipulation.

Much of the global economy is a mirage. An appreciable percentage of malls, auto dealerships, restaurants, real estate developments, office towers and other hallmarks of the developed countries’ way of life would not exist but for debt promotion and below-market interest rates. Many of the assets listed on individual and corporate balance sheets are debt, somebody else’s liability. The borrower expects the return on investment or speculation will be higher than the interest rate he or she must pay. The majority of lenders lend, notwithstanding low rates, because they are either interest-rate-insensitive central banks or must generate some sort of return to fund future liabilities (pension funds) or present lifestyles (retirees).

Once debt starts contracting, speculative flows reverse first, because speculation is the most leveraged economic activity. Contracting credit is a margin call, and assets whose prices had been bid up as credit expanded must be sold to meet the claims of creditors. Because it is impossible to satisfy all claims (especially when many financial assets are collateral for multiple loans, our present situation), debt must be written off and losses realized, threatening creditor solvency. They sell assets and the cycle turns vicious. While it is unclear how much rising wealth promotes economic activity on the way up—the much ballyhooed wealth effect—wealth destruction accompanies economic contraction on the way down. People cannot spend paper wealth they no longer have and against which they can no longer borrow.

Expanding debt cannot “solve” the economic problem of too much debt any more than another drink can solve alcoholism. Additional debt became an unbearable burden before 2008—costs exceeded benefits, as the housing bust and financial crisis made clear—and the world has added almost $30 trillion since then. What was obvious to Washington Irving in 1820 remains obvious. The remedies pursued the last five years have been blind to the consequences and counterproductive. Governments and central banks’ debt expansion has only delayed and ultimately will amplify the economic and social pain. The end of quantitative easing this month will take the blame for recent global equity weakness. It shouldn’t; at most it hastens by a few months the collapse of a skyscraper of cards as the “superstructure, built upon credit and reared by speculation, crumbles to the ground, leaving scarce a wreck behind.

TGP_photo 2 FB




Fed Cries Uncle

Well, that didn’t take long. From it’s closing high on 9/18/14 of 2011.36 to today’s intraday low of 1835.02, the S&P index declined by less than 9 percent, which does not even qualify as an official “correction” of 10 percent. However, the “Got-Your-Back” Federal Reserve doesn’t want any tele-tantrums from Jim Cramer tonight, so James Bullard, president of the St. Louis Fed, served this little raw meat appetizer to Wall Street’s bellowing hordes.

The Federal Reserve should consider delaying the end of its bond purchase program to halt a decline in inflation expectations, said St. Louis Federal Reserve Bank President James Bullard.

Speaking in an interview today with Bloomberg News in Washington, Bullard said U.S. economic fundamentals remain strong, and he blamed recent financial-market turmoil on downgrades in the outlook for Europe.

“Inflation expectations are declining in the U.S.,” he said. “That’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE.”

Bullard is the first Fed official to publicly suggest the central bank should extend its program of quantitative easing when policy makers meet later this month. U.S. stocks pared losses and Treasuries declined on expectations the Fed will take action to insulate the U.S. from global economic weakness.

Continue reading

He Said That? 10/15/14

From Ed Yardeni, president and chief investment strategist at Yardeni Research Inc.:

“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth. Even the wizards are admitting that their powers to do so are limited.” “No Happy Ending for Investors in Central Bank Fairy Tale,”, 10/14/14

SLL, Robert Prechter, David Stockman, and a number of commentators on Zero Hedge have been saying the same thing for years, but now it looks like the mainstream has discovered the emperor has no clothes. Maybe in a few years they’ll even admit that debt monetization and fiat money ultimately retard rather than promote economic growth, although they do promote asset bubbles and deflationary crashes.